Can China’s steel output sustain growth with new market stimulus?

A Bloomberg report reveals Chinese steel production bounced back in October after four consecutive months of decline, driven by improved margins and Beijing’s economic recovery efforts.

Steelmakers produced 81.88 million tons, a 6.2% increase from September and 2.9% higher than the same period last year, according to data from the statistics bureau released on Friday.

The cumulative decline in steel output for the year has now narrowed to 3% compared to 2023, marking a shift in sentiment for the sector.

Despite this recovery, the industry faces significant challenges.

Weak demand from the property sector and ongoing losses at many mills underscore the fragility of the rebound.

Analysts credit the uptick in production to rising orders from manufacturing and state-backed construction projects, alongside a surge in exports.

Steel production climbs, but challenges remain

The October recovery signals improved conditions for Chinese steelmakers, thanks to better margins.

However, much of the sector is still operating under financial strain, with sluggish property demand continuing to weigh on performance.

While Beijing’s stimulus measures have provided a temporary boost, analysts warn of a lack of sustainable demand drivers.

The property market, traditionally a significant contributor to steel consumption, remains under pressure, and large-scale infrastructure projects have yet to reach levels that could ensure long-term growth.

The China Iron and Steel Association (CISA) cautioned producers to maintain disciplined production levels, noting that the recent price rebound does not reflect a fundamental shift in market conditions.

Exports and manufacturing fuel growth

One bright spot for the steel industry has been the surge in exports and a pick-up in manufacturing orders.

State-led infrastructure projects have also played a key role, helping to offset weak domestic housing demand. However, these gains may not be sufficient to drive sustained growth.

Beijing has hinted at the possibility of further stimulus measures in 2024, but industry experts remain sceptical that these policies will revive the market’s traditional demand sources, such as new housing developments and large-scale steel-intensive infrastructure projects.

Aluminium and other materials see gains

China’s aluminium output rose 1.6% year-on-year in October, driven by seasonal demand and additional capacity coming online.

Smelters have restarted some idled production facilities, and new plants have begun operations to meet the growing need for lightweight metals in various industries.

Meanwhile, the production of power fuels showed notable growth.

Coal output increased by 4.6%, and natural gas production surged 8.4% as China bolstered supplies ahead of peak winter demand.

However, the refining of crude oil dropped 4.6% due to poor margins, highlighting mixed performance across energy-related sectors.

Long-term outlook remains uncertain

While October’s rebound offers some optimism, the broader outlook for China’s steel industry remains clouded.

Persistent challenges in the property sector, coupled with limited growth in traditional demand areas, continue to dampen expectations for a robust recovery.

The government’s focus on boosting exports and manufacturing could provide short-term relief, but industry insiders and analysts stress the need for structural reforms to address deeper issues in the sector.

As Beijing weighs additional stimulus measures, the coming months will be crucial in determining whether the recent recovery can be sustained.